No Tea Leaves Needed to Parse This Fed

One of the most common parlor games in the business press is to muse about when The Fed will begin to remove monetary accommodation from the market. Or at least change the wording of the statement released after their meetings to signal to the market that a policy change is imminent. This page has long been of the opinion that the bull market will remain viable until this finally occurs. After today’s statement release it appears we are not close.

Lost on the public amidst the speculation is The Fed’s dual mandate, something we have been as guilty of overlooking as the next talking head. With the Humphrey Hawkins “full employment” bill in the late 1970’s The Fed was mandated to manage monetary policy not just with an eye to inflation but to employment as well.

This is why The Fed routinely appears late in removing monetary stimulus after recessions have clearly ended. Unemployment is a lagging indicator and the economy has long since been on the mend by the time it improves sufficiently for The Fed to begin raising interest rates.

We have not been alone in thinking that this time it must be different. The Fed has unleashed an extraordinary amount of stimulus into the system and we felt they would have to be timely in removing it lest it lead to an inflationary environment, violating their other policy charge.

But $80 oil and nominally record high gold prices seem to be insufficient to jar this Fed from their focus, which is to insure that sufficient stimulus remains in the system to ward off the deflationary effects which are normally the direct result of a financial calamity such as we endured in 2008.

The Fed’s resolve, which they have made abundantly clear in personal statements by various members for weeks, is an ongoing all clear sign to the carry trade to continue to bid the price of assets higher. While there must be some target prices for oil and gold that will force The Fed out of their somnolescence we are clearly not close.

The stock market is in a correction. And we believe lower prices are ahead in the near term. But The Fed has promised us today a second leg higher after this correction. You’d be foolish not to believe them. today’s statement release it appears we are not close.

Lost on the public amidst the speculation is The Fed’s dual mandate, something we have been as guilty of overlooking as the next talking head. With the Humphrey Hawkins “full employment” bill in the late 1970’s The Fed was mandated to manage monetary policy not just with an eye to inflation but to employment as well.

This is why The Fed routinely appears late in removing monetary stimulus after recessions have clearly ended. Unemployment is a lagging indicator and the economy has long since been on the mend by the time it improves sufficiently for The Fed to begin raising interest rates.

We have not been alone in thinking that this time it must be different. The Fed has unleashed an extraordinary amount of stimulus into the system and we felt they would have to be timely in removing it lest it lead to an inflationary environment, violating their other policy charge.

But $80 oil and nominally record high gold prices seem to be insufficient to jar this Fed from their focus, which is to insure that sufficient stimulus remains in the system to ward off the deflationary effects which are normally the direct result of a financial calamity such as we endured in 2008.

The Fed’s resolve, which they have made abundantly clear in personal statements by various members for weeks, is an ongoing all clear sign to the carry trade to continue to bid the price of assets higher. While there must be some target prices for oil and gold that will force The Fed out of their somnolescence we are clearly not close.

The stock market is in a correction. And we believe lower prices are ahead in the near term. But The Fed has promised us today a second leg higher after this correction. You’d be foolish not to believe them.